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AIR WARFARE SYMPOSIUM NEWS: Air Force Mimics Venture Capitalists to Lure in Startups

ORLANDO, Fla. — The Air Force wants innovative companies and startups to see it as a premier venture capitalist and has a pot of money to spend on new ideas, the head of acquisitions for the service said Feb. 28.

For years, commercial companies have been wary to work with the military, said Will Roper, assistant secretary of the Air Force for acquisition, technology and logistics.

Previously, starts up wouldn’t even come to see the Defense Department, he said during remarks at the Air Force Association’s annual Air Warfare Symposium in Orlando, Florida. “In fact, in many cases they're devalued if they have a contract with defense. I can't say a more damning statement. The fact that you have money from us lowers your evaluation, says we are losing” the fight against adversaries.

Great power competitor countries such as China don’t have such issues. A concept called civil-military fusion allows the government to take advantage of commercial innovation, he added.

To combat that, the Air Force has stood up offices such as AFWERX and hosting pitch days with industry to get after and develop new technology, Roper said.

“Over the last year, 18 months, we've been trying a bunch of grassroots initiatives that are all focused on trying to grow the industry base,” he said. “We want to create a big bang. We want more companies coming in.”

To coalesce these efforts, the Air Force is creating what it calls AFVentures, Roper said. Events under that umbrella include the 15 pitch days that started last March and injected $360 million into hundreds of businesses.

The result is 733 companies that are new to the Air Force, he said. “They're working on something that could change the world, but we're not thinking about defense applications and now they're into our orbit.”

Roper later clarified to reporters that investment means putting a company on firm, fixed-price contracts.

“We're not actually owning equity, but we use that that term because we want to think like an investor trying to grow the company, grow their product and invest in a portfolio of them so that statistically some ideas go big knowing that not all of them will,” he said.

When the Air Force put these companies on contract, private investors on average matched each dollar the service put in by three, he said.

“We grew our money here — we took $300 million, turned it into over a $1 billion,” he said. “Think if we did this at scale and routine, think if private investors, the venture capitalists — like Andreessen Horowitz and Venrock — thought of working with the Air Force or Space Force as a market delineator for becoming a commercial success.”

If that happened then the best companies and innovators would come see the Air Force first and the service would reap the benefits, he said.

“The thing I'm happy to report is that they are,” he said. “With China engaging the way they have on Hong Kong, even in the last year, I have seen a change in Silicon Valley and elsewhere in terms of how people view the Department of the Air Force. Chinese money is viewed differently than it was in the past.”

That has created a window of opportunity to fill the gap and the Air Force wants to be the one to do it, he added.

“There's a chance to go really big on this,” Roper said.

The Air Force plans to grow its venture investment substantially, and hopes to reach $500 million in 2020, he said.

“I would like to at least cross $500 million this year, but I wouldn't be surprised if we go further than that,” he said.

Companies that grow and become household names rapidly and reach valuations of $1 billion are called unicorns. The defense industry has only had a handful of companies that have done that including SpaceX, Palantir and Anduril, he said.

“The saddest thing I can say is that we've had only those three,” he said. "[We are] so thankful for them, but we have to routinely create companies that change the world and if we can keep AFVentures with the same kind of credibility it has today as a good housekeeping seal of approval, the way it's viewed by private investors, I expect that we'll see that three to one matching number continue to go up.”

These investments and the matching from private investors will multiply the money the service puts in and grow the industrial base, which has shrunk over the years because of acquisitions and mergers, Roper said.

“If we can continue that trend, that will be the inducement for the Air Force to move more of its portfolio into AFVentures,” he said. “You're not just getting great companies; you're getting great companies and your money is multiplying.” The Air Force can’t just be a purchaser but a partner, he said.

Roper added: “Wouldn't it be wonderful if the tech giants of the future all said, 'I got my start working on a Department of the Air Force contract.'”

The service wants to work with disruptive technologies and get ahead of the game, he said. That includes flying cars through an effort known as Agility Prime.

Flying automobiles “are ready to do amazing military missions, but what's their challenge? All the companies working them are working with domestic ambitions. They're not thinking about us. They're having challenges getting certification because who's going to sign off that these things are safe or airworthy?” he said.

The Air Force provides a unique opportunity for manufacturers of flying cars by offering up its state-of-the-art ranges for testing and its certification process that is universally trusted, he added.

“We have a value proposition that is greater than our money and so what we've done is we've reached out and said the Air Force is interested in flying cars,” Roper said. It wants to explore missions such as logistics, rescue and disaster relief.

The response by the private sector has been tremendous so far, he said. The service is now running a program that has billions of dollars in research-and-development funding from the private sector in it and almost no government money.

“If we succeed on this, then this has become a habit in this department,” Roper said. “We have to have people that are tech scouts looking for trends we can influence. Because if innovation is the new battlefield, you've got to look for opportunities as much as risks.”

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